Risk Management for Innovation Initiatives

In most startups, resources are scarce and the concept of a “Lean” methodology has taken root. This thinking has resulted in a new model for innovation and startup company launch that reduces overall risk to the startup and its investors. Yet, risk management has not kept pace for innovation within the corporate setting.

Customer Discovery

First and foremost is the focus on the general market opportunity and specifically the target customer. Unlike past methods such as focus groups, surveys and other traditional market research, the customer is involved at the earliest stages of concept formation and validation. The customer, as much as the innovator, has a say in the evolution of innovation.

Enterprises must go through this process as well. It’s too easy to mistake our industry knowledge for what our customers will truly use and buy.

Testing an innovative idea may begin with mock ups, tests/trials, designs or prototypes. The goal is to get feedback around the idea, test assumptions, react, and iterate quickly. Depending on the innovation, these iterations may occur several times in a day or every few weeks.

The use of short feedback cycles allows for smaller incremental investments and responsiveness to testing of assumptions that isn’t available with other ‘big bang’ approaches. For startups, it preserves precious capital. For corporations, it prevents multi-year mistakes. This method isn’t free, or necessarily cheap, but it’s more cash efficient.

No Expertise Required

Rather than having a panel of ‘experts’ solely deciding which innovative concepts should be tested, involve target customers in deciding not only which ideas are compelling, but which they feel will bring the most value. In an Enterprise, these customers may be other departments looking for innovations in process efficiency or customer service.

Measuring Innovation Risk Management

Overall, managing risk, even with small incremental investments and rapid feedback cycles requires understanding the business case supporting the proposed innovation. Key metrics that an idea can be evaluated against, whether it’s increases in internal efficiency, or adoption in the market by customers, are important to making the governance decisions required to either end a failed innovation initiative or make a bigger bet on an innovation that has passed muster with the target customer.

Know what success looks like and have a scorecard. Don’t be afraid to kill something that isn’t working, but more importantly don’t be afraid to invest in something that’s hitting your goals.

Take the Chance, Again

The sad fact is that many, if not most, innovative ideas never get traction. This can be due to a number of factors from the idea itself being bad, to timing, poor execution, or lack of support by the organization. This means that in some ways we’re playing a numbers game, where we may be able to influence the odds, but certainly cannot control the ultimate outcome. Venture capitalists understand this and their success or failure is dependent upon their ability to get enough innovations in their pipeline and launched such that the positive returns from 2 or 3 success outweigh the losses on the other 7 or 8.

In the end, your greatest risk to innovating may be not taking enough risk.